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Oil falls further on stock build and demand concerns

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Oilfield Technology,


Oil prices fell further this morning, as traders priced in the latest bits of concern about stock builds and the Covid-19 infections surge.

Rystad Energy’s daily market comment today comes from its Head of Oil Markets, Bjornar Tonhaugen:

"Brent prompt futures are under pressure this morning with bearish traders selling below US$40, in a reminder that not all is well yet in the market.

Just when some thought that the recovery would come as a landslide for oil, reality kicked in and stock builds rose again, while demand, which was expected to rise as Covid-19 subsides, is again under threat with infections rising in key markets.

Also, welcome back, contango! Unfortunately for OPEC+, the prompt Brent futures contract is suddenly trading at a discount to the deferred contracts. It is a signal that the market is repricing expectations for the tightness in the market in coming August.

So what’s going on now? Well, what matters always is “what is priced in” to anticipatory assets such as equities and oil futures.

The market is reassessing the outlook for the US economic recovery as the US sun belt states are seeing a continuously alarming rate of new daily cases, which is most likely not due to extensive testing as some might argue, but more likely the result of an early reopening of the social distancing restrictions last month.

The minor crude stock build in the US yesterday was not the main culprit of a correction in prices here, this is mostly about expectations for oil demand, for which the market now sees the outlook arguably more uncertain.

If the rise in gasoline use that is currently observed, a positive indicator for oil prices, halts or swings back to decline with new lockdown restrictions, then the oil market will lose one of the pillars that keep price levels healthy.

All eyes are on how governments will react to the new surge of the pandemic, where that happens, as these policy decisions are in reality what will determine the direction of the market. In other words what will determine demand!

From the producers side, OPEC+ has done what it should to curb demand. Now the ball is on the virus itself and how quickly it will allow the world to come back to normal."

Read the article online at: https://www.oilfieldtechnology.com/special-reports/25062020/oil-falls-further-on-stock-build-and-demand-concerns/

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